People's Bank of China Raises Foreign Exchange Reserve Ratio

The People's Bank of China will increase the foreign exchange deposit reserve ratio for financial institutions from 4% to 6% starting November 15. This 2 percentage point hike requires banks to hold a larger share of their foreign currency deposits in reserve, which tightens onshore dollar liquidity.

The central bank stated the move is intended to strengthen the management of foreign exchange liquidity at financial institutions. Market analysts view the decision as a signal that Beijing wants to slow the recent appreciation of the yuan and maintain exchange rate stability.

This policy shift follows a daily USD/CNY fixing of approximately 6.71, a figure that was weaker than market estimates. While the direct impact on liquidity is considered modest, the action indicates a concerted effort by the central bank to lean against the strength of the yuan.